March 3, 2008

PRICE–FIXING AMONG COMPETING BIDDERS

FOR CORPORATE CONTROL IS NOT PER SE UNLAWFUL,
A FEDERAL TRIAL COURT RULES

A federal trial court in Seattle has ruled that a price-fixing agreement among competing bidders for the acquisition of a corporate target is not necessarily unlawful under the US antitrust laws.

The case, Pennsylvania Avenue Funds v. Borey, et al.
(No. C06-1737RAJ, W.D. Wa.), involved an auction for the acquisition of publicly traded WatchGuard Technologies Incorporated (WatchGuard) in which at least 18 private equity funds and 17 strategic partners were among the bidders.

After initially submitting independent bids, two of the private equity bidders, Vector Capital (Vector) and Francisco Partners (FP), remained as the only bidders in the running. According to the complaint, brought on behalf of a putative class of WatchGuard shareholders, in the final stages of the bid process Vector and FP agreed that Vector would drop its bid, allowing FP to purchase WatchGuard at a reduced price, and then that Vector would fund half of FP’s acquisition in exchange for a 50 percent interest in WatchGuard after the merger. The plaintiffs claimed, among other things, that the agreement between Vector and FP restrained competition in violation Section 1 of the Sherman Act.

The court granted defendants’ motion to dismiss the antitrust claims, reasoning that, on the one hand, the alleged agreement was not the type of arrangement that should be considered per se unlawful under the antitrust laws and that, on the other hand, the complaint failed to allege the predicate facts necessary to support a finding of an antitrust violation under the rule of reason.

For our readers, we have prepared a summary of this case and its implications for participants in similar corporate control auctions.
Please read it here.